Check Truncation - Where Are We Now

By :Andrew Short

July 16, 2015 08:30 AM

As I return to the payments space, one interesting area to reflect upon is “Check truncation” - the conversion of a physical check into a substitute electronic version. In North America, it has come a long way in recent years, but the path of progress has not been even. In some countries it remains a backroom function carried out by banks, while in others consumers are invited to take part in the process by scanning checks with their smartphone.

In either case, truncation helps to speed up check processing time. The US first moved towards this technology about a decade ago and, although check use has fallen in the intervening period, US banks have found that imaging technology improves the efficiency of checks - helping to protect the national clearing system from future threats and build new services around this age old payment instrument. But the US wasn’t the first country to move. Despite its small size, Singapore pioneered a check truncation system (CTS) in 2002. Nigeria is another country to enable check truncation. India completed its landmark CTS project, which was launched by the Reserve Bank of India in December 2007.The project uses NCR image-based check scanning technology to enable banks to capture the images of the check and securely transfer it to the drawee bank electronically through the clearing house based in National Payments Corporation of India (NPCI). It will reduce processing time from three days to two for most intercity checks in a country where four million checks are processed daily. Canada too is completing its path to cheque truncation with imaging and clearing initiatives taking hold this year. Banks here get the luxury of benefiting from the experiences learned from implementations in other countries and also have a strong set of vendor tools and services. This allows Canadian banks to push beyond image clearing initiatives directly to remote deposit capture projects truncating the item sooner in the process (at the Teller, ATM, Commercial or Consumer Client). In the UK, efforts to support check imaging have taken off after a slow start. Initially, plans were made to phase out checks entirely by 2018, but an outcry from various business and consumer groups forced the authorities to back down, which has led to legislation being put forward to enable truncation by 2016. As long as there are checks, truncation initiatives including remote deposit capture have a strong future. Whether more countries launch their own CTS or skip the process entirely remains to be seen. But if the experience from the countries mentioned in this post shows, as long as a bank’s customers find value in using this type of instrument, it’s in a banks best interest to make the experience efficient and modern. I look forward to sharing more thoughts on the potential to progress checks along with other payment types towards faster payment initiatives in future blogs. Check out NCR Financial Services for additional solutions.

Andrew has 20+ yrs experience in the software industry covering banking, healthcare and the telecommunications verticals. With past positions in finance, accounting, sales, and prod. mngt, he brings significant mobile and payment expertise to his current role.